As a bare minimum the real Venezuela should now create a Recovery Inc., to get back what’s been stolen from it.

Sir, I read John Paul Rathbone’s and Shawn Donnan’s “Markets urged to prepare as IMF weighs exceptional Venezuela rescue” October 17. Sadly it misses some important points.

Suppose that there is a new government… because with the current one there is nothing to be done, there should be nothing to be done.

Then you can initiate a worldwide recovery effort of what was stolen from Venezuela and that could, should, yield let us estimate at least $50bn, and that after the bounty hunters or whistleblowers have been paid their commissions.

If you stop giving away gas in Venezuela, something I am trying for the World Bank or the IMF to declare as a punishable economic crime against humanity, then you would release, in a sustainable way, billions in resources year after year. Look at it this way, Venezuela sells gas (petrol) at less than $1 cent per gallon, Norway sells it at $2.07 a gallon.

Also, just clearing the air of the current bandits, would release the energies of at least a million of Venezuelans full of initiatives that are dreaming of returning to their country.

And, if there is not a new government, then an exiled government, like De Gaulle’s French government in London during World War II, and which counts with a legitimate National Assembly, and a legitimate Supreme Court (in exile), could, should, at least get going with Venezuela’s Recovery Inc.

Of course, at the end of the day, the oil revenues must begin to be shared out directly to all Venezuelans, instead of being manipulated by the chiefs of turn, because a tragedy in waiting like Venezuela’s current one, should never be permitted to happen again. 

http://radicaldelmedio.blogspot.com/2009/10/recuperadora-inc.html

https://perkurowski.blogspot.com/2017/10/world-bank-please-dare-tackle-issue-of.html

https://www.carnegiecouncil.org/publications/archive/policy_innovations/commentary/000083

@PerKurowski

In order to find common Nafta ground, US, Canada and Mexico must begin by clearing for robots and automation

Shawn Donnan and Jude Webber quote Robert Lighthizer, US trade representative, having told negotiators. “Thousands of American factory workers have lost their jobs because of these provisions.” “Canada and Mexico rebuke US as Nafta renegotiation starts” August 17.

If Nafta members take notice of what robots and automation has done to manufacturing jobs, in all of their nations, then instead of facing each other as enemies they would be sharing a challenge.

It still amazes me how the recent American elections failed to recognize the job opportunities lost to automation. Had that not happened, Donald Trump would have had to speak about a Wall against robots instead, and would not have become president… not that that would have solved much either.

Jobs lost to robots and automation is not an easy problem to handle as it does produce good results too. If I was Nafta I would begin by asking my partners: “How do we make sure our grandchildren will be able to live surrounded by 1st class robots and smart artificial intelligence and not end up with 3rd class ones and dumb AI? That would be a real positive and constructive challenge for it.

http://perkurowski.blogspot.com/2017/02/here-some-disorderly-lose-cannon.html

@PerKurowski

World Bank, once again, the Basel bank regulations’ implicit risk aversion, attempts against any development.

Sir, Shawn Donnan writes: “In an interview, Paul Romer, World Bank chief economist, said the long-term effect of weak investment on developing economies was one of the main long-term challenges facing the global economy.” “World Bank warns on weak investment” June 5.

In October 2007, at the High-level Dialogue on Financing for Developing at the United Nations, in New York, I presented a document titled “Are the Basel bank regulations good for development?” It contained among many other the following paragraphs:

“It is very sad when a developed nation decides making risk-adverseness the primary goal of their banking system and places itself voluntarily on a downward slope, since risk taking is an integral part of its economic vitality, but it is a real tragedy when developing countries copycats that and falls into the trap of calling it quits.”

“The World Bank, as a development institution, should have played a much more counterbalancing role in this debate, but unfortunately it has been often silenced in the name of the need to "harmonize" with the IMF. Likewise, the Financial Stability Forum is also, by its sheer composition and mission, too closely related to the Basel bank regulations to provide for an independent perspective, much less represent the special needs of developing countries.”

“For the record, let us state that although we have made the above comments from the perspective of ‘finance for development,’ most of the criticism put forward is just as applicable to developed countries.”

“To conclude, we wish to insist that no society can survive by simply maximizing risk avoidance; future generations will pay dearly for this current run to safety.”

Unfortunately my arguments have gone nowhere. As is, the wagons circled by bank regulators to fend off any criticism, has been impenetrable to truths such as those implied in John A Shedd’s “A ship in harbor is safe, but that is not what ships are for”.

PS. 2002-2004, as an Executive Director of the World Bank I did what I could to silence those sirens singing that the risk weighted capital requirements would make our banks, and our economies, safer. I stood no chance. Basel’s siren’s song sounded much sweeter.

@PerKurowski

Who sold IMF the fake idea that risk weighted capital requirements for banks do not distort the allocation of credit?

Sir, Shawn Donnan, referring to a IMF paper recently released by Christine Lagarde, “Gone with the Headwinds: Global Productivity”, writes that IMF economists warn: “The world’s economy is caught in a productivity trap thanks to an abrupt slowdown caused by the 2008 global financial crisis, which will yield more social turmoil if it is not addressed hold that” “IMF raises fear of slowing productivity” April 4.

Bank assets, based on how they are perceived ex ante, can be divided into safe and risky assets. The “safe”, by definition, currently include sovereigns and corporates with good credit ratings, and residential mortgages. The “risky” include what is unrated or what does not possess very good ratings… like loans to SMEs and entrepreneurs. It is also clear that she safe includes more of what is known; meaning what’s in the past or present, and the risky more of what is unknown, meaning what lies in the future.

Then suppose regulators had transparently told the banks: “We hate it so much when you take risks so that, from now on, if you finance something that is perceived as safe and stay away from what is perceived as risky, we will reward you by helping you to make you much higher risk adjusted returns on equity”.

In such a scenario, could it not be reasonably expected that IMF would be identifying regulatory risk aversion as something that could be slowing productivity? I mean, as John A Shedd said: “A ship in harbor is safe, but that is not what ships are for"

But, rewarding the banks for going for the safe, and staying away from the risky, is exactly what the current risk-weighted capital requirements for banks does.

And the IMF, even though here the report mentions: “Growing misallocation during the pre-global- financial-crisis financial boom [and] The global financial crisis might have worsened capital allocation further by impeding the growth of financially constrained firms relative to their less constrained counterparts.” says nothing about distorting bank regulations having something to do with this misallocation; an only produces second-degree explanations such as “banks may have “evergreened” loans to weak firms to delay loan-loss recognition and the need to raise capital”. How come?

April 3, in FT, Anjana Ahuja in reference to Robert Hare’s 1993 “Without Conscience: The Disturbing World of the Psychopaths Among Us,” wrote the following:

“Uncertainty is unsettling and certainty is alluring. Beware anyone who offers the latter with charisma, especially at this jittery juncture. Arm yourself against the charlatans…not only criminal psychopaths but the white-collar kind — who overstate their abilities, denigrate subordinates, have a tenuous grip on truth and seek greater power with shrinking oversight.”

Could it really be that one or more of these spellbinding salesmen of certainty illusions, technocratic besserwissers, managed to enthrall and blind the whole IMF? If so, Mme Lagarde owes herself and the IMF to find who they were… and to put a stop to it.

May I suggest she starts doing so by sending around to all those in the IMF that have had anything to do with bank regulations, some of those questions that, without any luck, I have tried to get answered, many times even in the IMF. Here’s the link: http://subprimeregulations.blogspot.com/2016/12/must-one-go-on-hunger-strike-to-have.html

But perhaps IMF already knows who those “charlatans” were, and just want to spare some members of their mutual admiration club some very deep embarrassments. If so then IMF is not fulfilling its responsibilities, as it should.

Too much is at stake! More than ever the world need to develop the capability of filtering out any fake experts, no matter how nice they are and no matter how important the networks they belong to.

PS. Twice I have had the opportunity to ask Mme Lagarde on this subject, and twice she kindly answered me, but nothing seems to have come out of it 

http://subprimeregulations.blogspot.com/2011/09/my-question-at-civil-society-townhall.html

http://subprimeregulations.blogspot.com/2013/10/my-question-for-umpteenth-time-to-world.html

PS. In December 2016, during the IMF’s Annual Research Conference, Olivier Blanchard also agreed with me there were needs to research how these capital requirements distort.

http://subprimeregulations.blogspot.com/2016/11/olivier-blanchard-agrees-there-is-need.html

@PerKurowski

FT echoes accusations of “knowingly profiting from murder” against World Bank, but not mistakes by bank regulators?

Sir, Shawn Donnan’s “Lawsuit” of March 9, has left me dumbstruck.

In 2002-2004 I was an Executive Director at the World Bank (IFC) occupying the Chair that, among others, represents Honduras. In 2003, surely before Dinant and its late owner Miguel Facussé times, I have never heard about them, I visited some of those palm plantations in the Bajo Aguán region of Honduras.

In an Op-Ed I then wrote, I stated that I found these to be horrible, appalling; basically because to me it looked like that it “could be the mother of all poverty traps”, “ the borderline of lowest overall marginal cost, that is, where the least is paid to farmers for their labor”; and also because I always felt that “if we let globalization simply pursue the lowest marginal cost of labor, then Great Bad Deflation will inevitably come”.

But, as to the World Bank or the IFC “knowingly profiting from the financing of murder”? And of these being a detonator? “Lawyers lay out a build-up of violence before and after the IFC began lending to the company” I have to say no, no and no!

Could IFC, the World Bank, be lured into lending or investing in something that has something awful going on behind the curtains? Yes, that could happen to anyone. 

Could some individual from IFC and the World Bank be involved in something criminal? Of course, but from there to launch this type of accusations against the institutions as such, only damages without serving any purpose. How much seed of suspicions can you seed before you do irremediable damage?

Also could it not be that someone is knowingly exploiting some poor suffering Honduran farmers, in an ambulance chasing type of action? I do not know EarthRights, and I have absolutely no reason to suspect anything but good intentions on their part, but profiteering happens, and so one needs to always proceed with utmost care.

I am no longer an ED, and since I am no longer capable, in my profession, of making one to my conscience honest living in my Venezuela… I now belong to a Civil Society (don’t ask me to explain precisely what that means). And as a member of it I do my best to generate constructive advice to valuable institutions such as the World Bank (and, disclaimer, absolutely not only because my wife works there).

Sir, let me get back to how I have titled this letter: The Basel Committee for Banking Supervision has made some mindboggling and very dangerous mistakes. FT has not shown a willingness to clearly echo my concerns or even ask bank regulators for some very basic explanations. But, “without fear and without favour”, you now allow this against the World Bank to be published. How come the differential treatment? Could not bad regulations be a murder weapon?

PS. Nowadays I hope for robots to take care of those palm plantations; and by taxing a bit those robots, be able to provide the poor farmers of Honduras a better chance to place themselves closer to something more profitable for them, and foremost for their children and grandchildren.

@PerKurowski

Why is IMF silent about the fact that bank regulators, slowly but surely, are causing the economies to stagnate?

Sir, Shawn Donnan, Chris Giles and Gabriel Wildau report that “IMF calls for global action to lift demand as China exports fall” March 9.

With the credit risk weighted capital requirements for banks that allow banks to leverage more their equity with what is ex ante perceived as safe than with was is perceived as risky, banks earn higher expected risk adjusted returns on equity on what is “safe” than on what is “risky”. And as a consequence “risky” SMEs and entreprenuers do not have adequate access to bank credit. And that, slowly but surely, must cause the economy to stagnate. There’s no doubt about that.

When you stress test banks, the most important issue could be what is not on banks’ balance sheets.

IMF’s David Lipton warns the global economy is “clearly at a delicate juncture” and that “Now is the time to decisively support economic activity and put the global economy on a sounder footing,”.

And so I ask again: Why does IMF insist on keeping silence on the odious regulatory distortion of the allocation of bank credit to the real economy?

Mme Christine Lagarde: Ask!

@PerKurowski ©

IMF, the “bold” action needed is not for “to contain risk”, but for to contain bank regulators’ silly risk aversion.

Sir, I refer to Shawn Donnan’s “IMF urges top economies to join forces in growth push” February 25.

In it IMF is quoted warning: “global market turbulence is starting to hurt the real economy…These developments point to higher risks of a derailed recovery, at a moment when the global economy is highly vulnerable to adverse shocks”

But again, as has been the case for the last decade, IMF says not one word that what really derailed the economy, and now impedes it from getting back on rails, were the distortions in the allocation of credit to the real economy, produced by the risk weighted capital requirements for banks.

And IMF opines: “The global economy needs bold multilateral actions to boost growth and contain risk.”

NO! The “bold” action most needed is not to “contain risk” but to get rid of that silly risk aversion that, around the world, over the last decade, has perhaps impeded millions of bank loans to SMEs and entrepreneurs. 

@PerKurowski ©

How many small bank loans to SMEs and entrepreneurs has Basel Committee’s regulations hindered? Millions?

Sir, Shawn Donnan reports that in his annual economic report to Congress president Obama portrayed an American economy in relatively rude health after weathering one of the most brutal crises in its history. But Obama also acknowledged rising inequality, and that “a lot of Americans feel anxious”, blaming that on an economy that thanks to technological advances had been “changing in profound ways, starting long before the Great Recession”. “Obama rejects allegations economy is on the slide” February 23.

I would suggest to Mr. Obama he poses the following question to some economist at universities and at the Federal Reserve: 

How many bank loans to SMEs and entrepreneurs have not been awarded in America and Europe the last decade because of the risk weighted capital requirements for banks, ten thousands, hundred thousands, millions? I expect their answer to be frightening.

One way to obtain that number would be to look at how many of these loans were on the balance sheets of banks pre Basel II and how many are to be found today.

There is no way in hell America and Europe can regain sturdy and sustainable economic growth with bank regulators who distort the allocation of bank credit to the real economy with a silly and dangerous credit risk aversion.

Ben McLannahan in “US lenders blast proposed capital buffer rules”, reports on the ongoing discussions about rules on banks’ “total loss absorbing capacity” (TLAC). There he writes: “The top lobby groups for banks in the US have blasted proposals to make them build bigger capital buffers against losses, saying the “excessive” requirements could restrict the flow of credit to the world’s biggest economy.”

But, no matter at what percentage they are set, the required total loss absorbing capacity is still based on risk weighted assets (RWAs). And that means banks must hold more TLAC for assets considered as risky than for assets considered as safe.

And so that means those capital requirements especially restrict the flow of credit to those perceived as “risky”, the SMEs and entrepreneurs.

In this world were lobbying has sadly become a part of the government process, how sad it is that “The Risky” have no powerful lobbyist on their side.

The first arguments such a lobbyist could produce is to inform regulators about the fact that SMEs and entrepreneurs, precisely because they are perceived as risky, already count with less and more expensive access to bank credit, and so they never ever set of major bank crises.

And to address the inequality issue they could cite J.K. Galbraith’s “Money: Whence it came where it went” 1975 with: “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own.”

“A ship in harbor is safe, but that is not what ships are for.” (John Augustus Shedd, 1850-1926) America, Europe, the World, what goes for ships goes for banks too!

America, Europe, the World, for the sake of next generations, allow your banks to finance the risky future and not only be refinancing the safer past!

@PerKurowski ©

When regulators told banks: “Stop chancing on the future and just safeguard the past”, they doomed the middle class

Sir, I refer to Sam Fleming’s and Shawn Donnan’s FT’ Big Read. “America’s Middle-Class Meltdown: Changing fortunes” December 10.

To explain why the middle class and those who aspire to be middle class, those who are doing fine and growing when the economy grows in a balanced way are currently doomed, let me quote two passages from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975.

First: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]”

Second: “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

And so Sir, when bank regulators introduced credit risk weighted capital requirements for banks; which allow banks to leverage more their equity with the net risk adjusted margins provided by those perceived as safe, than with those provided by the “risky”; which allows banks to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky; then they effectively instructed banks not to take a chance on the more risky future, but to concentrate on safeguarding the safer past… and that was, and currently is, the beginning of the end of the middle class… and the increase of inequality.

Let us be clear, in the Home of the Brave, the Trojan Horse of the Basel Committee, helped cement a dangerous sissy aversion to credit risks.

​@PerKurowski ©

Mme Lagarde, IMF owes Greece and it’s creditors, to explain and correct what was done wrong with bank regulations

Sir, Shawn Donnan writes: “There is broad agreement that the fund and its European partners badly miscalculated the extent of the negative impact of the punishing reforms and severe austerity imposed on Greece”, FT Big Read IMF “Lagarde eyes new act in Greek drama” August 14.

In 2011 during a Civil Society Town Hall meeting at the IMF I asked Mme Lagarde: “If bank regulators had defined a purpose for banks before regulating, we might have had a very different bank crisis, but not as large, systemic, and dangerous as this one…when are you going to require the regulators in the Basel Committee to openly and explicitly define the purpose of our banks… to see if we all agree? 

And Mme Lagarde answered: “My sense is that the most critical mission for the banks--and that is what we are trying to say when say that banks have to rebuild their capital buffers--is to actually finance the economy, first and foremost, and that should be really the critical mission”.

As is, now, some years later, banks still have to operate under the influence of credit-risk-weighted capital requirements, something that of course has absolutely nothing to do with adequately “financing the economy”.

So how can IMF or its European partners get anything right about Greece, if it does not want to acknowledge, or even dare to understand, how current regulations distorts the allocation of bank credit?

Those distortions, by favoring so much public debt, caused the Greek tragedy and, by discriminating against the fair access to bank credit of the “risky”, like SMEs and entrepreneurs it, stops the Greek tragedy from ending.

Mme Lagarde: IMF owes the Greek, and Greece’s creditors, to explain and to correct what was done wrong when regulating banks. That must come before anything else.

What I would do? Make sure banks needed to hold slightly less capital when lending to the private sector than when lending to government bureaucrats.

@PerKurowski